Limited partner performance and the maturing of the private equity industry

We evaluate the performance of limited partners’ (LPs) private equity investments over time. Using a sample of 14,380 investments by 1,852 LPs in 1,250 buyout and venture funds started between 1991 and 2006, we find that the superior performance of endowment investors in the 1991-1998 period, documented in prior literature, is mostly due to their greater access to the top-performing venture capital partnerships. In the subsequent 1999-2006 period, endowments no longer outperform, no longer have greater access to funds that are likely to restrict access, and do not make better investment selections than other types of institutional investors. We discuss how these results are consistent with the general maturing of the industry, as private equity has transitioned from a niche, poorly understood area to a ubiquitous part of institutional investors’ portfolios. Contact information: Berk A. Sensoy, Department of Finance, Fisher College of Business, Ohio State University, Columbus, OH 43210, email: [email protected]; Yingdi Wang, Department of Finance, California State University Fullerton, Fullerton, CA 92834, email: [email protected]; Michael S. Weisbach, Department of Finance, Fisher College of Business, Ohio State University, Columbus, OH 43210, email: [email protected]. For helpful comments and suggestions, we thank an anonymous referee, Enrico Perotti, and seminar and conference participants at the California State University at Fullerton, Georgetown University, London Business School Private Equity Symposium, The Ohio State University, and the White House Council of Economic Advisors.